A few days ago, Science and Technology Innovation Board IPO application of Shenyang Fuchuang Precision equipment Co., Ltd. (hereinafter referred to as "Fuchuang Precision"), the first company written by a lawyer to participate in the prospectus, was accepted.

In the section "issuing relevant parties" in the prospectus, it is clearly written that the lawyers for writing and verifying the transcripts of the prospectus are Tang Zhoujun, Gu Pingkuan, Mu Jingli, Su Fulei and Liu Yunhao, from Beijing Zhonglun Law firm. According to public information, Tang Zhoujun was appointed as a member of the first listing Committee and the first M & A reorganization Committee of the Beijing Stock Exchange in November 2021. Tang Zhoujun and Gu Pingkuan are equity partners of Zhonglun, while Mu Jingli is non-equity partners. Other intermediaries participating in the Fuchuang Precision IPO include CITIC, Lixin Accounting firm and Guorong Xinghua Asset Evaluation Co., Ltd.

Fuchuang Precision hires Law firm Information Source: prospectus

CSRC: lawyers may draft prospectus together with sponsors

The participation of lawyers in writing the prospectus is advocated by the Securities and Futures Commission.

On October 29, 2021, the Securities Regulatory Commission issued the guidance on improving the quality of Information Disclosure of the prospectus under the Registration system (draft for soliciting opinions).Clearly pointed out that "encourage the preparation of prospectus verification transcripts and other means to improve the quality of prospectus information disclosure, lawyers can work with sponsors to draft prospectus to enhance the standardization of prospectus information".The CSRC mentioned that since Science and Technology Innovation Board and the gem pilot registration system, the quality of information disclosure in the prospectus has been improved, but there are still some problems, such as lengthy length, lack of pertinence, too much compliance information, weak role in investment decision-making, lack of concise language, and so on, which not only reduces the readability of the prospectus, but also makes it more difficult for investors to identify and make use of limited information. It also affects the market parties' cognition and evaluation of the registration system reform to a certain extent, and affects the exertion of the resource allocation function of the capital market.

In fact, in mature capital markets such as US and Hong Kong stocks, prospectuses are written by lawyers. As early as 2012, the Securities Regulatory Commission issued the guidance on further deepening the Reform of the IPO system (draft for soliciting opinions).Advocate and encourage qualified law firms to write prospectuses。

The market believes that writing the prospectus by lawyers is not only more in line with international practice and in line with the international market, but also conducive to making the prospectus return to the attribute of legal documents, rather than paying attention to the advertising attribute of promotion. However, some investment bankers believe that the current regulatory focus is on the implementation of the responsibility of securities firms, and it is difficult to popularize the prospectus written by lawyers in the short term.

Is the "food chain" going to change?

If lawyers participate in writing the prospectus, will A-share IPO legal fees usher in a wave of rise?

As of December 13, according to the statistics of flush iFinD, A shares issued a total of 471 new shares (including the Beijing Stock Exchange) in 2021, with lawyer fees ranging from 300000 yuan to 17 million yuan, with an average fee of 4.9895 million yuan, accounting for 1% of the total fund-raising. Among the new shares issued in 2021, the most expensive legal fee is 688499.SH, which was listed on July 1, with a legal fee of 17.7358 million yuan, accounting for 18.45% of the total listing fee. The cheapest legal fee is China Railway Special goods (001213.SZ), which was listed on September 6, accounting for only 301900 yuan, accounting for 0.94% of the total listing fee. Coincidentally, both companies employ Beijing Guofeng Law firm.

If it is estimated that according to the average 1% of the proportion of legal fees raised, Flextronics intends to raise 1.6 billion yuan this time, and if in accordance with the usual practice, the remuneration of Zhonglun law firm is about 16 million yuan. But since Flextronics is the first IPO to have lawyers involved in writing the prospectus, it remains to be seen whether the price will rise.

There is no doubt that the responsibilities and risks faced by lawyers participating in the drafting of the prospectus will be greater. From the perspective of regulatory punishment, most of the regulatory measures and disciplinary actions of gem and Science and Technology Innovation Board under the registration system are the first responsible person, that is, the company itself, as well as relevant sponsor institutions and sponsor representatives. In 2021, neither gem nor Science and Technology Innovation Board issued regulatory warnings or sanctions on law firms or signed lawyers; in 2020, Science and Technology Innovation Board issued only one regulatory warning decision on signed lawyers. Cao Yiran, Dai Kan and Dong Yonghao, three lawyers of Guofeng Law firm, were notified for failing to verify the relationship and related transactions between the departure pedestrian and the second largest client.